Question

Complete the following statements with the correct type of costs.

a. Costs associated with fixed inputs that do not change when output changes are_______ costs.
b. Costs associated with variable inputs that do change when output changes are_________ costs.
c. Costs that are forever lost once they have been paid are_________ costs.

Answer 1

Answer:

a. Fixed Cost

b. Variable Costs

c. Sunk Cost

Explanation:

Fixed cost is the fixed input, which is not effected by the change in the output level. As the output increase the per unit fixed cost decreases, because the input is fixed.

Variable cost is the variable input, which is not effected by the change in the output level. It varies with the change in the input rather the output. As the Input increase the total variable cost increases, because per unit price of input is fixed.

Sunk cost are those cost which is incurred or paid in the past. This is a historical cost and it is not used in the planning and decision making because it has already been incurred at the time of decision.